Ash Kulkarni: Yes. Thanks for the question. What I’d say is that in terms of Generative AI, it has had — it’s definitely contributing in terms of revenue, but given our overall size, I’d say the contribution is still in the early days. In terms of the consolidation that we are seeing on our platform, incumbent solutions being displaced by customers and customers consolidating onto our platform for observability and security. That’s a play that we’ve been running for several quarters now. And as it typically takes some time for these workloads once they come on to ramp up, as you can imagine, since we’ve been doing it for a few quarters, that has been a very strong contributor to the growth of the business, and the fact that consumption is stable also helps.
So if you will, that’s how I would think about it. So the consolidation is probably the biggest and the cloud consumption being stable is probably the thing that just equalizes things, if you will. But Janesh, I don’t know if you want to add anything?
Janesh Moorjani: Yes, I’d agree with that ranking, ash.
Patrick Colville: Thanks, Ash. And I guess, Janesh, my follow-up is for you, please. So 3Q non-GAAP op margins of 13%, nothing to snip out at all. Based on my imbalance, some investors nitpicking, but look, that’s only the same as 2Q levels and guidance indicates a leg down in 4Q. Can you just double-click on what’s going on in terms of profitability? Are there one-offs to call out in 3Q? Why this lag down in 4Q?
Janesh Moorjani: Yes. So happy to cover that. If I think about the change from the third quarter to the fourth quarter, we are obviously pleased with the outperformance that we delivered in Q3. But in the fourth quarter, one of the things that we had called out last time is that, we have approximately $12 million higher in seasonal expenses in Q4. I had mentioned this on the prior call, this relates to the timing of employee benefits and our engineering all-hands events. And then also, as I mentioned a little bit earlier on this call, since we have 2 fewer days in the quarter, we’ve got a natural headwind of approximately $6 million to $7 million on revenue. So those two factors come together, and that’s why Q4 is lower. The seasonal items affect only Q4.
And so from our perspective, we really focus on managing the full-year number. And as you saw here, we’ve raised our outlook for the full-year. We had raised it even earlier in the year, and we’re very pleased that we can outperform even against our prior commitments, and we expect to finish the year strong.
Patrick Colville: All right, nice to be part of the story and thank you for having me on.
Janesh Moorjani: Thank you.
Operator: The next question comes from Brent Thill of Jefferies. Please go ahead.
Brent Thill: Janesh, I know RPO bounces around, but it did decel anything underneath the surface that we should be aware of?
Janesh Moorjani: Hey Brent, so overall, I’d say we are actually very pleased with the annual contract selling motion, including how sales successfully delivered a very strong Q3. We’ve talked about some of the trends in the business that we saw, including platform consolidation and so forth, and all of those reflect that success. If I think about RPO, maybe the one thing I’d call out is that contract lengths were similar to what we’ve previously seen in the business at roughly 1.5 years, but they were slightly shorter than the year ago period. And so RPO can vary a little bit based on the terms of the deals that we signed in a consumption business. You’ve also got variations of customers try to match the timing of their renewals and expansions with how quickly they are consuming.
So tracking it on a quarter-to-quarter basis can be a little bit noisy. Nothing else I would actually call out. Fundamentally, RPO growth was in line with revenue growth and all the other measures. And was generally in line with the rest of the business. And as we’ve shared before, we look at revenue as really the primary indicator of the success of our business, and we are very pleased with the outcome there.
Brent Thill: And then for Ash on AI, some of these early wins, you mentioned it’s still obviously really early. But are there any common threads you pull in terms of verticals or die scope geos. What are the common — commonalities that you’re starting to see? I guess is there anything you can do to kind of step on the gas in terms of awareness and you’ve seen others start boot camps and do smaller deployments, and it seems to be resonating with others in the industry. Anything you’re learning and taking and pushing forward as you go through this AI wave?
Ash Kulkarni: Yes. Thanks for the question. So some of the patterns that we are definitely seeing is, one, it’s pretty broad-based across industries. I have to give some examples in my prepared remarks. If you think about some of the tech companies like Stack Overflow, Cisco that I’ve talked about in the past, you look at some of the others that are in the document management space, which is the one that I mentioned, the Consensus, which is all about research, scientific research, it’s completely broad-based. A lot of the use cases are still internal facing as customers are continuing to become more and more confident about their ability to manage the risk of hallucinations, and obviously, the RAG pattern, which they use Elastic to build, really gives them the best chance of reducing the hallucinations, but that’s something that customers are still making sure that they grow into — so that’s the second pattern.
There is still a lot of internal facing staff. And that will eventually change, right? Now in terms of how we are driving this and how we are taking this to our customers. Look, I’ve mentioned now in the last three quarters that every quarter, we’ve been adding several hundred customers incrementally that are now using us using for these vector search use cases, storing dense vectors, doing vector similarity searches. I’ve talked about the adoption of our ELSER Sparse Encoding model. So we’re very excited about the traction that we are seeing here in terms of customer adoption. And the way we are driving this is effectively through our sales organization and the marketing events that we are doing, we’ve gone through six out of our 12 Elastic on Events for this fiscal year, and we’ve got six more in this fourth quarter.
